1031 Exchanges Essay -- essays research papers

Final Paper 1031 Exchanges Insight for the real soil investorThis paper is written to provide a reasonably comprehensive overview of plane section 1031 of the IRC as it pertains to real estate transactions, and to offer some thoughts on the wealth-creation advantages that 1031 Exchanges offer.For the great part of the last decade, we in the United States have been witness to a consistently appreciating real estate market. Sometimes it seems that almost anyone who has purchased a ho office, gentleman of space, or other real estate type investment has through very well. I somebodyally can point to a a few(prenominal) examples where friends of mine have made several hundred times their low home equity investment. In sales of primary homes at that place is a tax advantage that the IRS permits, as long as the proceeds ar invested into another home, the capital ingests on your existing home sale argon exempt from taxation. However, if the lieu in question is an investment, a c apital gain tax is assessed every time there is a sale that includes a gain. A tax strategy that investors can employ in much(prenominal) situations is to transfer their investment property for another investment of resembling-kind, this is a parting 1031 Exchange. Under Section 1031, if all its guidelines are met, the exchange is not a taxable event. Also, similar to tax rules regarding reorganizations - in a 1031 Exchange there is no taxable event and therefore no step-up in basis.The wealth-creation advantage of a 1031 Exchange can be viewed in the map below. The example depicts two sales of real estate, the initial assumption is that the property has been completely depreciated and the entire $100K of initial equity is a capital gain. instance 1Event 2Typical Sale1031 Exchange investing experiences 20% appreciationTypical Sale1031 ExchangeEquity 100,000100,000160,000200,000 value20,000016,0000... ...y within the United States and personal property apply predominantly outs ide the United States are not property of a like kind.(B) Predominant use Except as provided in subparagraph 1 (C) and (D), the predominant use of any property shall be determined based on(i) in the case of the property relinquished in the exchange, the 2-year termination ending on the date of such relinquishment, and (ii) in the case of the property acquired in the exchange, the 2-year period beginning on the date of such acquisition. (C) Property held for less than 2 years Except in the case of an exchange which is part of a transaction (or series of transactions) structured to avoid the purposes of this subsection(i) only the periods the property was held by the person relinquishing the property (or any related person) shall be taken into neb under subparagraph (B)(i), and (ii) only the periods the property was held by the person acquiring the property (or any related person) shall be taken into account under subparagraph (B)(ii). (D) Special rule for certain property Property draw in any subparagraph of section 168 (g)(4) shall be treated as used predominantly in the United States.